Vantage Point: Economic Outlook  

What next for the US economy?

  • To understand recent public policy developments in the US economy
  • To discover the inflation outlook in the US economy
  • To understand the range of possible outcomes for the US economy from here
CPD
Approx.30min

Nevertheless, like other developed economies, the US economy has lost momentum and this loss of momentum, plus the fact that the Fed is likely to do more to tighten financial conditions in the near term, does not change our 12-month outlook that recession is more likely than not.

Fed pressure 

While the recent moderation in inflation was welcome news for Fed officials after several consecutive upside surprises, we still believe Fed officials will be concerned about several underlying trends in inflation.

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The year-over-year rates of core inflation measures (such as the New York Fed’s underlying inflation gauge and the Atlanta Fed’s sticky price measure), which historically have tended to be better predictors of future inflation, have all accelerated in recent months.

More concerning to the Fed, US wage inflation has also broadened from the low-wage, low-skill services sectors to a range of industries, occupations, and skill levels. Data implies that unit labour costs have also substantially increased – something corporations will likely aim to offset by increasing prices to maintain margins.

Taken together, the outlook for inflation to moderate to a still above-target pace should keep the Fed on track to position monetary policy to restrict the economy, and recession over the next 12 months looks more likely than not.

That means targeting a period of below-trend growth may not be enough to fully moderate inflation. And like the BoE, which has committed to continue tightening monetary policy despite its recessionary outlook, a more forceful approach may be needed to ensure that US inflation is well-anchored at the Fed’s target. 

CPD
Approx.30min

Please answer the six multiple choice questions below in order to bank your CPD. Multiple attempts are available until all questions are correctly answered.

  1. What does Wilding say influences consumer purchasing behaviour?

  2. What is the Federal Reserve predicting for the US economy?

  3. Why does Wilding say the pace of US interest rate rises will moderate from here?

  4. What is the terminal rate of interest?

  5. What is Wilding's 12-month outlook for the US economy?

  6. What does Wilding say is the underlying rate of US CPI inflation?

Nearly There…

You have successfully answered all the questions correctly, well done!

You should now know…

  • To understand recent public policy developments in the US economy
  • To discover the inflation outlook in the US economy
  • To understand the range of possible outcomes for the US economy from here

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